Author Topic: Working on finances  (Read 1828 times)

Offline bluefoxicy

  • Brewer
  • ****
  • Posts: 299
    • View Profile
Working on finances
« on: August 01, 2011, 09:31:38 AM »
I found this on my way to work





And later picked up some pizza stuff and a loaf of bread



.... and after all that, I started playing with finances.

I've gone through the rent-versus-own argument (spoiler:  owning a house is a horribly expensive luxury, not an investment), but I'm primarily focused on transportation.  Transportation is an easy way to save money, although bigger gains are made by renting rather than owning when you have no specific reason to own a house.  Learning to invest on a basic level (that is:  keep an emergency fund, but put the remainder of your savings into stable bonds or ETFs or whatnot) gets a steady 7% per year gain in the long term and is another important financial skill; advanced investing starts to become a weekend, part time, and then full time job, and is discouraged as a major focus unless it's really your thing.


That's a lot of stuff in one little paragraph.  The only part I'm inclined to expand on outside an essay is transportation.

As far as that goes, I've determined the following:

  • Gas is cheap.  Buying a Volkswagon TDi or a Prius won't save you money
  • Maintenance is cheap.  Maintaining your car costs around $1000/year as a dedicated driver, half as much as gas eh?
  • Cars are expensive.  Imagine a $20,000 car you drive 20k miles/year, in five years it's over 100k and most people sell it for $3000-$5000.  Maintenance at this point is more expensive just to keep the damn thing running, but it's doable and not much more.
  • Insurance, finance charge, etc..  The nickles and half-dollars.  With full coverage insurance is expensive, liability only it's not.
Let's put this all together, huh?

First off, on gas.  The average is $2000/year for gas, and upgrading from 25mpg to 43mpg drops that to $1150; you save $850/year getting a $25000 car versus a $15000 Corolla or Mazda3, good for you.  Meanwhile here's my Mazda 3 for the month:

Say you buy yourself a $15,000 car with a finance rate of 3.6% for 5 years, you put no money down, tags and taxes come out to $600, you get GAP for $300, and you buy the extended warranty for $1400.  $17,300 off the lot </fantasy>.  You pay a total of $18,930 for the car ... not bad, $3,786/year.

$3,786, plus your $2,000 for gas, plus the $1,000 for maintenance, gives $6,786 to own this car.

To illustrate a point, you get the Toyota Prius for $25,000 at 3.6% for $900 taxes (sales tax goes up) plus a $1,900 extended warranty and $300 GAP.  $28,100, becomes $30,746, or $6,149/year.  Gas drops to $1,100 and maintenance for $1,000 (yeah, average goes up but I'll ignore that) gives $8,249/year to own this car.

Didn't I tell you gas was cheap and cars are expensive?

Now, I'm biking to work every day, and to the grocery store:



71.9 miles for the month.

Gas isn't my concern.

Notice that I did about 491 miles this month, 72 by car.  14.6% of my transportation needs are handled by bicycle.  Notably, I've changed my habits to avoid biking so much or driving excessively:  long weekend trips all over town have been eliminated in favor of better planning.  Rather than traveling 96 miles in one day, I do my grocery shopping at the store near work on my way home from work (cuts 22 miles), bring home a larger load from the butcher out east and just bike it every other week or third week (eliminates 19 miles, but I drive that highway about 22 miles one way!), and make fewer trips to the markets up north (16 miles each way).  This eliminates 400 miles of driving per month.

In other words, I've turned 900 miles of driving (3 tanks, $150) into 72 miles of driving, cutting back to 8% of my typical driving.  The straight elimination (43%) is mostly grocery shopping that I do closer, although it prevents me from buying a specific type of butter ... which I can stock up on once every 2 months, really.

So, 92% of my driving expenses disappear.  My car takes less maintenance, lasts longer, and eats less gas.  That $3,786/year becomes $302.88, and I save $3,483.12.  Thus far I've paid for my $450 bike in gas (although not for the expensive extras--$50 compression shirts, a high-visibility jersey, a new-model CamelBak...).  In my case, I also dropped my insurance costs by 30% by using a Progressive Snapshot.


I feel I don't have enough mobility with the bicycle:  longer trips (over about 8 miles for me; anything below has like a 5-10 minute time penalty at best, but I've beat my car to work by 1 minute once), trips when I'm tired, etc, are out of reach.  Particularly, that 16 miles north... one day I want to do the whole circuit, it's 42 miles of biking to go to Binkert's (11 miles east), Farmer's Market and Wegman's (16 miles north), and H-Mart (11 miles west) in the most efficient path.  I've done 29 in a few hours when I biked to the MVA to renew my driver's license (and stopped at Binkert's because it was 3 miles away).

Do I want to regularly ride north 16 miles through hilly city streets to go grocery shopping, then come back?  ... no.


So I'm going to buy a motorcycle next year ... a nice little modest job, Kawasaki Ninja 250R.  Back on a gas burner, how's that save me any money huh?

Ninja 250R:  $4,000

61MPG

Throw on some motorcycle hard-case panniers and I save half the gas costs.  Maintenance per mile?  It's similar to a car; motorcycles aren't cheap to upkeep.  Insurance?  Cheaper, but it's added on and so I have to pay that $30/mo (I'm not 28 yet, and I set my liability limits and medical injury limits HIGH).  Amortize a $4,000 purchase over 5 years (unrealistic given how little I drive) versus a $17,000 purchase and you get $800/year instead of $3,400/year.  It eats half as much gas, so you wind up with $1000/year for fuel instead of $2000/year.

In other words:  It's cheaper to buy a brand new entry level sports motorcycle every single year and just junk the old one (without reselling) if you can completely replace your car with it.  Bigger sports bikes, cruisers, etc, not so much--more fuel and maintenance.


At this point I want to point out something about motorcycles:  If you put 3 people on motorcycles, the costs of maintenance and purchase amortization and fuel usage triple; whereas 3 people in a car is very efficient.  You may find it slightly cheaper, or slightly more expensive.  Motorcycles aren't a great way to move people in bulk--trains, buses, and cars are actually good at this.  Bicycles are fantastic in bulk for anything within biking range.

This means a car is great for a family, for family outings.  One-car families make sense, of course; no-car families are quite a bit harder.  A one-car family is especially sensible since you must run your car occasionally.  I drive mine 3-4 times per month just to keep everything flowing, all around 10-15 mile trips, a couple extra long; those longer grocery trips are good for a twice-a-month run, but I kind of want to eliminate my car entirely.  A single-car family will find plenty of use for their car; you can eliminate a lot of use, but a family unit will still find plenty.


So even at the family level, you can maintain mobility and decrease expenses by having a diversified transportation plan.  Bike more--it keeps you healthy, but also eliminates harsh short trips on the family car.  Get a motorcycle for your daily commute to work, they're cheaper to eventually replace than cars and you only have to move yourself anyway.  Possibly move to a single-car family and reap the savings of not buying a second $20,000 car.  Were you smart enough to rent instead of owning a home, and plan ahead to move into a bigger place as your family expands?  Move into an apartment closer to work; bicycle there; save the gas and maintenance and replacement costs for your kids' college or for your future down payment on a house if you decide to buy one.  You both work?  Either both motorcycle, or decide who bikes and move accordingly.

In a family setting like this, it's important to have emergency independence.  A motorcycle will move you quick; but if you're biking 5-10 miles and it's actually taking you much longer (some crazy people have an hour and a half commute here, but they can drive it in half an hour... mine is not a highway ride or uphill one way and down the next), you both need to know how to handle emergencies.  Hell, even if you have a half hour drive, what's a car going to get you in an emergency?  She's on her own; if you can be called, so can the police, fire department, ambulance, etc.  If it can't be handled over the phone and it can't wait an hour, it's not going to wait for your 30 minute drive home either.  This isn't an excuse to recklessly strand yourself an hour away; it's an important consideration for why you need to prepare for either of you (and eventually your kids) to be a single independent responder in an emergency.



So that's my rant for the day.  Did I save on gas by biking?  Yeah.  Was that important?  Not really; look what else I saved.  Should everyone sell their car and go exclusively to a bicycle?  Hell no; even I shouldn't be exclusively biking, and I need a motor scooter or motorcycle to supplement my transportation plan.  Can families benefit?  Yep, family life can massively benefit from the reduced expenses associated with reduced car use, and minimize the involved time investment and potential inconveniences associated.



As a final note, I'd like to point out that my insurance dropped from $234 to $113 each month, as I switched car insurance and started biking; my base rate is now $168/mo before the low usage discount.  At $113, with 71.9 miles in $8.58, I spent 11.9 cents per mile on gas and 157.2 cents per mile on insurance.  I spent 5.7 cents per mile on consumables for my bike (I use electrolyte tablets in my water; a coworker didn't listen, and recently wound up vomiting from too much pure water intake before being hospitalized with a heat injury).  As I said, insurance is the nickles and half dollars of car ownership.

Offline tom

  • Senior Brewmaster
  • ******
  • Posts: 1110
  • Denver, CO
    • View Profile
Re: Working on finances
« Reply #1 on: August 01, 2011, 09:41:27 AM »
Making soup?   ;)

Nice bicycle basket.  Where did you get it?
Brew on

Offline narvin

  • Senior Brewmaster
  • ******
  • Posts: 1232
  • Baltimore
    • View Profile
Re: Working on finances
« Reply #2 on: August 01, 2011, 09:57:39 AM »
I cannot believe they haven't fixed the finances of this country yet!

(LOCK   ;) )
Please do not reply if your an evil alien!
Thanks
Chris S.

Offline bluefoxicy

  • Brewer
  • ****
  • Posts: 299
    • View Profile
Re: Working on finances
« Reply #3 on: August 01, 2011, 10:17:52 AM »

Making soup?   ;)

No, that thing bites lol...


Nice bicycle basket.  Where did you get it?

Amazon, ridding myself of it.  It's developed a hole, has crappy mounting hardware ... I'll pull it off the rack and put panniers on.

I cannot believe they haven't fixed the finances of this country yet!

(LOCK   ;) )

I have, actually... I solve the world's problems on paper as a hobby, mostly by being realistic and accounting for obvious human nature problems or by pitting a problem against itself to minimize damage.  But let's save that for the All Politics forum.

On a less political level, though, improving individual finances is an effective strategy for solving large economic problems.  The most political this gets is adding such things to mandatory school curricula and/or supplying a separate course as a public service WITH public service announcements to advertise and encourage it.

Government doohickey aside, if people were to reduce their expenses by effective financial management (notice the stuff I put here is extremely minimalist--rent instead of owning, live in a place sized to your needs, and don't rely on cars when cheaper transit is just as effective), they could survive on less money.  Low-end poverty would become middle-class living.

Eventually, wages would go down:  people would take the $20,000 wage equivalent extra they're not spending and go, "Hmm, well I hate this place, want to live there instead, and it costs just as much BUT I can only get a job there making $15k less than I do now ..." and would take lower paying jobs.  No one is going to flock out the door to reduce their income, but they may move to their ideal retirement location before retiring and accept the lowered income as the cost of living the good life.  This would eventually result in general lowering of wages as the average wage for a job goes down.  Companies would meanwhile have more money to play with, allowing for expansion and job creation--paying salaries with the money saved (two $60k jobs become three $40k jobs).

I know all that sounds fancy and idealistic, but it's natural economics unadjusted for the inflation that occurs during that time.  In other words, it would happen over time.  Society arranges itself in hierarchy of the high, the middle, and the low; educating the middle and the low to improve their economic standpoint makes part of the low the middle, and the existing middle the upper-middle.  The high, upper middle, middle, and low eventually become the high, the middle, and the low as the upper middle exchange increased wages for increased quality of living by means of employers offering lower wages in locations of more desirable living or for less demanding jobs.  As less demanding, lower wage jobs fill, the average income decreases; housing prices don't increase as fast, and so inflation catches up to the cost of living; then higher-paying jobs become cheaper across the board.

It's a very complex balance.  The whole process starts by using a ********** huge carrot to play on individual greed (as I said, I solve complex social problems by balancing them against each other).

Offline Slowbrew

  • Senior Brewmaster
  • ******
  • Posts: 1657
  • The Slowly Losing IT Brewery in Urbandale, IA
    • View Profile
Re: Working on finances
« Reply #4 on: August 01, 2011, 01:02:50 PM »
The problem with your theory (one of them at least) is pitting greed against long term planning.  The majority of people will take short term gain over long term gain every time.  That's why arguments that say make coffee at home, save $4/day on Starbucks, save it and retire 10 years early, don't work.  Once the herd goes to get a latte all the calves follw right along so they don't feel "left out".

Does anyone else hear a clicking sound over by the door handle?   8)

Paul
Where the heck are we going?  And what's with this hand basket?

Offline bluefoxicy

  • Brewer
  • ****
  • Posts: 299
    • View Profile
Re: Working on finances
« Reply #5 on: August 01, 2011, 02:01:51 PM »
The problem with your theory (one of them at least) is pitting greed against long term planning.  The majority of people will take short term gain over long term gain every time.  That's why arguments that say make coffee at home, save $4/day on Starbucks, save it and retire 10 years early, don't work.  Once the herd goes to get a latte all the calves follw right along so they don't feel "left out".


While that may be true, the benefits of owning a house are wholly that "it's a long-term investment" or "you can do a lot of work to your house."  It's the worst investment possible; it's more expensive than renting; and you have to do your own maintenance or yard work (or pay money for people to do this).  The tax advantage is a write-off, so it doesn't save you over the interest:  it reduces your income by that much and saves at most a third of that.

As for transportation, the big problem with biking to work (where doable--long highway drives are not doable, while city drives come with minimal or no time penalty) is mostly the learning curve--physical and mental.  For the first month, it's rough (I do 7 miles one way), then it's just normal; that difficulty discourages people who use the "I'm not in shape" argument (hollow and lifeless).  Dealing with the heat, cold, and rain all involve preparedness and proper clothing, which takes some research that most people won't want to do; they'll just complain it's too hard (too hot, too cold, rainy, etc.).

These are excuses to avoid a change requiring minimal but unknown effort.

For those who are considering "Getting into shape," the argument that it saves gym time and money investments is actually pretty decent, because short 5-10 mile city rides actually don't take much longer than by car and don't cost $50/mo more than the savings over using a car.  The heat is the first thing people learn to deal with; the cold less so, because people fear the cold more (ridiculously, simple merino wool and a wind jacket solves all the problems with the cold).

Motorcycle rides are seen as crazy death traps for people who don't want to live long.  This is a poor risk judgment, as motorcycle fatalities in crashes are nearly the same as car fatalities in similar crashes (same speed etc.) when proper safety equipment is used.  Besides, a commute through the city at 30mph on a motorcycle isn't dangerous; falling off at that speed would be fun at best, annoying at worst, a hospital trip for a broken arm if you're spectacularly bad at this.  Wear your helmet, leathers/mesh, boots, and gloves.

Most of this is, as you've said, herd mentality.  People perceive that it can't be done, or is only done by a few people; everybody says it's hard, or strange, or dangerous, so it must be so.  Public service announcements to encourage cycling short trips would increase the number of short bicycle trips done by leaning on this mentality:  a lot can be done just by suggesting it repeatedly, and plenty more by suggesting it'll save you a lot of money.  Change 10% of the peoples' minds and the rest will follow--I did not pull that number out of the air.

People are most inclined to what they've heard most, and short term planning only second.  Otherwise why would anyone ever buy a house?  It's expensive, hard to get rid of, etc... it's what everyone else does, what everyone tells you is a good idea for the long term, but obviously bad in the short term.  Getting out of a house is worse than getting out of a marriage.

Offline Tim McManus

  • Assistant Brewer
  • ***
  • Posts: 236
    • View Profile
    • Haskell Brewing Company
Re: Working on finances
« Reply #6 on: August 01, 2011, 03:03:22 PM »
You know, if you upgrade your income, these costs become too small to make it on a balance sheet.  :)
Tim McManus
Haskell, NJ

ccarlson

  • Guest
Re: Working on finances
« Reply #7 on: August 01, 2011, 04:13:09 PM »
Quote
It's the worst investment possible; it's more expensive than renting; and you have to do your own maintenance or yard work (or pay money for people to do this).  The tax advantage is a write-off, so it doesn't save you over the interest:  it reduces your income by that much and saves at most a third of that.

When you rent, all you're doing is paying someone's else's mortgage and property taxes without any of the write offs.With that logic you should also lease a vehicle. Not to mention that you're okay with exercising, so why not do yard work and let your exercise pay you back.

Sorry, but I don't agree with your logic.

Offline MDixon

  • Senior Brewmaster
  • ******
  • Posts: 1009
    • View Profile
    • Mike's Homebrewing Page
Re: Working on finances
« Reply #8 on: August 01, 2011, 06:24:50 PM »
It is certainly better to own a home in most areas than to rent provided one plans to stay in the home long enough, 5-7 years nowadays.

Another point of contention was being content (gosh that sounds nice the way I phrased that) with 7% returns. Sure I lost 40% on one group of mutual funds when the market tanked and I had my head in the sand, but those funds are back and off to the running. Another set of well chosen funds has provided a hefty 15% 3 year return (which does take into account dropping like a rock in the past few days). Even better IMO is the DRIP with AT&T which has been paying a 6% dividend.

If you really want to invest wisely IMO, max out your 401K ($16,500 currently for those under 50), grab all the match you can from your employer, at the same time invest the max in a Roth IRA with Vanguard, Fidelity or Schwab ($5,000) and have a portion of your payroll sent directly to an interest savings account not tied to a Debit Card, in fact, shred the debit card (that could make a very long thread in itself). Look at flex spending and try to put a little less than the amount you will need in it for medical expenses. It goes without saying to pay off all credit cards and carry no balance.

As an aside, be sure to check all aspects of your employer's 401K/retirement plan. I found out late last year mine has an After Tax portion which is not a Roth, but behaves similar and has a crazy high limit sort of like a SEP. So I can make Roth 401K or Traditional 401K as well as my personal Roth IRA and then once the limit is reached (or before) keep putting in after tax $ which grow like the 401K monies with the exception the initial investment will not be taxable again, only the earnings on that investment. Now if I was rich I'd max that puppy out as well... ;)
It's not a popularity contest, it's beer!

Offline punatic

  • Official Poobah of No Life.
  • *
  • Posts: 4582
  • Puna District, Hawaii Island (UTC -10)
    • View Profile
Re: Working on finances
« Reply #9 on: August 02, 2011, 12:18:01 AM »
Real estate values go up; real estate values go down, over the (relatively) short term.  In the end, those who accumulate wealth are those who own real property.

At the present time there is a lot to be said for renting a domicile.  However, real estate prices will never be lower than they are now.  If you have cash, over the long term, land is a better investment than precious metals.

There is a saying, "Land, they don't make it anymore."  Not true here where I live.  Pele is working hard to make new land here all of the time.

BTW BFI, you make many assumptions in your financial analyses above that are not accurate.  Case in point, why would one purchase an extended warranty on a used automobile?  A loser's bet if there ever was one.  I don't have the time nor inclination to analyze and address them all point by point.

But, I'm with you on the bicycle thing; I ride at least 12.6 miles every day.  Often 3 to 5 times that far.

BTW, BTW, I'd keep my fingers away from the business end of that turtle. 
« Last Edit: August 02, 2011, 01:30:02 AM by punatic »
There is only one success: to be able to spend your life in your own way.


AHA Life Member #33907

Offline euge

  • Official Poobah of No Life.
  • *
  • Posts: 7223
  • Estilo Casero
    • View Profile
Re: Working on finances
« Reply #10 on: August 02, 2011, 12:52:39 AM »
Besides, a commute through the city at 30mph on a motorcycle isn't dangerous; falling off at that speed would be fun at best, annoying at worst, a hospital trip for a broken arm if you're spectacularly bad at this.

Sheer hubris and no respect. Try it on the 250 and maybe we'll hear about you in the news. :-\
The first principle is that you must not fool yourself, and you are the easiest person to fool. -Richard P. Feynman

Offline phillamb168

  • Brewmaster General
  • *******
  • Posts: 2335
  • Lardy, France
    • View Profile
    • My Job
Re: Working on finances
« Reply #11 on: August 02, 2011, 01:30:41 AM »
I was thinking about starting a thread about finances.

Houses. We live in the "2eme couronne" of Paris, which is basically the second set of suburbs. Because the "1ere couronne" is almost completely built out, people are starting to come here in droves, and house prices have been going up steadily for the last 15 years. There's new construction everywhere, and buying a house with land (> 500 m2) is very, very expensive.

However, about an hour and a half away, there's Lille, which is a 25 minute train ride from Brussels, a 1h20 minute train ride from London, a 1h train ride from Paris, and a 3h train ride from Lyon or Amsterdam. It's located close to 6 major international motorways, and is the capital of beer country in France. It was voted Cultural Capitol of Europe in 2004, and has an Opera, Orchestra, theatre, music, and three universities. And 1/100th the amount of tourists that Paris has. In short, it sounds like paradise. We looked last night at the houses that were available. For the price of a horrible prefab near where I currently live, we can have this: http://www.leboncoin.fr/ventes_immobilieres/222539967.htm?ca=17_s

And that's the "dream home" - other houses are way, way cheaper and are equally well constructed, situated on lots of land - this one is more in our budget (http://www.leboncoin.fr/ventes_immobilieres/217100701.htm?ca=17_s) and it's located in the middle of the city. So, we've strongly considered buying a place there, perhaps in three years or so.

I don't consider it to be a bad investment. I consider buying a house with the intent to sell it for a profit later, a very bad investment. Buying our own house (and paying 1/5th the price as a downpayment) means we'd be paying the same for our mortgage as we pay in rent right now, except now, our rent can go up every year. Locking that in seems to make excellent financial sense.

But perhaps I'm not seeing all the angles? For those of you who have purchased a home, what are the downsides (apart from maintenance)?
I'm on twitter: phillamb168
----
morticaixavier for governing committee!

Offline punatic

  • Official Poobah of No Life.
  • *
  • Posts: 4582
  • Puna District, Hawaii Island (UTC -10)
    • View Profile
Re: Working on finances
« Reply #12 on: August 02, 2011, 01:47:23 AM »

But perhaps I'm not seeing all the angles? For those of you who have purchased a home, what are the downsides (apart from maintenance)?


Barney Frank
There is only one success: to be able to spend your life in your own way.


AHA Life Member #33907

Offline phillamb168

  • Brewmaster General
  • *******
  • Posts: 2335
  • Lardy, France
    • View Profile
    • My Job
Re: Working on finances
« Reply #13 on: August 02, 2011, 02:20:52 AM »

But perhaps I'm not seeing all the angles? For those of you who have purchased a home, what are the downsides (apart from maintenance)?


Barney Frank

What are the universal downsides, independent from local politics or current financial troubles?
I'm on twitter: phillamb168
----
morticaixavier for governing committee!

Offline euge

  • Official Poobah of No Life.
  • *
  • Posts: 7223
  • Estilo Casero
    • View Profile
Re: Working on finances
« Reply #14 on: August 02, 2011, 02:26:16 AM »

But perhaps I'm not seeing all the angles? For those of you who have purchased a home, what are the downsides (apart from maintenance)?


Barney Frank

I saw him on CNN on sunday. Is he really missing some teeth? Kinda creeps me out...

Back to the subject:

Done right buying a house is a smart move. On the other hand...

Quote
Mortgage:  In the word mortgage, the mort- is from the Latin word mori (via old french mort) for death and -gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a death pledge.
The first principle is that you must not fool yourself, and you are the easiest person to fool. -Richard P. Feynman